Exercise 22-13
Riverbed Co. purchased equipment for $573,000 which was estimated to have a useful life of 10 years with a salvage value of $10,200 at the end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2018, it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.
(a) | Prepare the entry (if any) to correct the prior years’ depreciation. | |
(b) | Prepare the entry to record depreciation for 2018. |
A |
Original Cost |
$ 5,73,000.00 |
B |
Salvage Value |
$ 10,200.00 |
C=A-B |
Depreciable base |
$ 5,62,800.00 |
D |
Life (in years) |
10 |
E=C/D |
Annual Straight Line depreciation |
$ 56,280.00 |
F=C x 7 years |
SLM depreciation for 7 years |
$ 3,93,960.00 |
G=A-F |
Book Value at the time of change in estimation |
$ 1,79,040.00 |
H |
New Salvage Value |
$ 5,000.00 |
I=G-H |
New Depreciable base |
$ 1,74,040.00 |
J |
New Life estimated (in years) |
15 |
K=J - 7 years |
Remaining useful life (In years) |
8 |
L = I/K |
New SLM depreciation [174040/8] |
$ 21,755.00 |
All Journal Entry (ies)
Date |
Accounts Title |
Debit |
Credit |
a. |
[No entry] |
||
[because, such changes are change of ‘estimates’ and not change of principals. This means No adjustments are required to correct prior years’ depreciation. |
|||
b. |
Depreciation expenses - Equipment |
$ 21,755.00 |
|
Accumulated Depreciation – Equipment |
$ 21,755.00 |
||
(new depreciation based on new estimate recorded) |
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